EUR/USD headed to 1.1830/20 on hawkish Fed surprise?

The EUR/USD pair keeps its offered tone intact in the Asian trades, now consolidating the extensive sell-off fuelled by a hawkish surprise delivered by the Fed overnight, as attention gradually turns towards the ECB President Draghi’s due later tonight.

EUR/USD: All eyes on Draghi

The spot reversed a majority of the recent bullish run and eroded nearly 160 pips rapidly, after the US dollar caught a sudden bid-wave across the board on surprisingly hawkish Fed outcome, which signaled a Dec rate hike and three more rate hikes next year. The DOTs plot chart showed a more aggressive Fed rate hike path, while the Committee announced a QE run-off starting October, as widely expected.

Following the Fed decision, the monetary policy divergence between both continents is back in play, as markets now await the QE tapering plans from the ECB. Hence, yield differential between the 10-year Treasury yields and German bund yields continue to favour the US dollar. The USD index advances +0.18% to 92.40, consolidating the gains near 2-week tops of 92.70.

Looking ahead, a fresh bout of USD buying cannot be ignored, as the European traders hit their desks and react positively to the Fed verdict by buying dollars. As a result, EUR/USD could see renewed weakness, which could drive the prices to the next support area located near 1.1830/20 region.

Calendar-wise, the major will look forward to the ECB economic bulletin amid a lack of key macro news from the Euroland. Meanwhile, the US jobless claims, Philly Fed manufacturing index and ECB Draghi’s speech will be closely eyed for fresh trading impetus.

EUR/USD Technical Set-up  

Valeria Bednarik, Chief Analyst at FXStreet noted: “Heading into the Asian session at its lowest for the week, and poised to extend its decline towards the critical 1.1820/30 region, in where the pair has bottomed the previous two weeks, also having there  a long term ascendant trend line coming from early April low of 1.0603. A break below the level should lead to a steeper decline that can extend during the upcoming sessions down to 1.1661, August 17th low.”